Old Exam Questions - Capital Budgeting
Page 30 of 55 Pages
43.
Given this information, and assuming that the relevant cost of capital for both projects
is 10%, determine the net present value (NPV) for the project with the highest internal
rate of return (IRR).
A.
$1,888.37
B.
$1,854.03
C.
$1,905.54
D.
$1,836.86
E.
$1,871.20
44.
Assume now that the firm has capital rationing, but knows that its true reinvestment
rate is 20%, while its cost of capital is 10 percent. Given this information, determine
the modified net present value (MNPV) for Project B.
A.
$4,197.24
B.
$4,145.73
C.
$4,214.41
D.
$4,180.07
E.
$4,162.90
YOU ARE GIVEN THE FOLLOWING INFORMATION FOR PROBLEMS 45-47:
Year
Project A
Cash Flow
Project B
Cash Flow
0
- $10,000.00 - $12,000.00
1
$ 3,000.00
$ 3,000.00
2
$ 2,000.00
$ 4,000.00
3
$ 5,000.00
$ 5,000.00
4
$ 2,000.00
$ 4,000.00
5
$ 2,000.00
$ 1,000.00
Risk-free Rate
6.0%
Market Risk Premium
4.0%
Project A Beta
1.50
Project B Beta
1.40
45.
Given this information, determine the internal; rate of return (IRR) for Project A.
A.
13.36%
B.
12.62%
C.
13.73%
D.
12.25%
E.
12.99%
46.
Given this information, determine the modified internal rate of return for Project B.
A.
12.42%
B.
11.68%